Earlier we talked about how Section 4(3) of the Stamp Act 1949 offers less protection than most businesses assume, and how the two limits built into that provision can leave a document fully exposed to ad valorem stamp duty. Today we share a real court case that shows exactly what happens when a taxpayer tries to rely on Section 4(3) and fails. The price tag was over RM1.4 million.

𝐁𝐚𝐜𝐤𝐠𝐫𝐨𝐮𝐧𝐝 𝐨𝐟 𝐭𝐡𝐞 𝐜𝐚𝐬𝐞 CIMB Bank Berhad and AirAsia Berhad had an ISDA Master Agreement governing derivative transactions between them. Because the ISDA contained no ascertainable payment sum at the time of signing, it was stamped at a fixed duty of RM10.00. Over time, various amounts became due and payable by AirAsia to CIMB under those transactions. AirAsia failed to settle the outstanding amounts and requested a restructuring. On 18 December 2020, the parties entered into a Settlement Agreement under which the outstanding amounts were to be amortised and paid over a series of fixed instalments. The Collector of Stamp Duty assessed ad valorem stamp duty of RM1,337,565.00 and a late stamping penalty of RM66,878.25 on the Settlement Agreement. The central issue was whether the Settlement Agreement was a subsidiary instrument under Section 4(3), attracting only RM10.00, or a standalone principal instrument subject to full duty under Item 22(1)(a) of the First Schedule.

𝐏𝐨𝐬𝐢𝐭𝐢𝐨𝐧 𝐨𝐟 𝐭𝐡𝐞 𝐓𝐚𝐱𝐩𝐚𝐲𝐞𝐫 CIMB argued the Settlement Agreement was subsidiary to the ISDA and should attract only RM10.00 under Section 4(3). CIMB further argued the Settlement Agreement did not fall within Item 22 or Item 27 of the First Schedule. CIMB also relied on a 1999 Association of Banks in Malaysia letter stating that ISDA-related documents should be stamped at RM10.00 under Item 4. As a last resort, CIMB argued that Item 27(a)(ii) should apply as the Settlement Agreement was denominated in foreign currency.

𝐏𝐨𝐬𝐢𝐭𝐢𝐨𝐧 𝐨𝐟 𝐭𝐡𝐞 𝐒𝐭𝐚𝐦𝐩 𝐃𝐮𝐭𝐲 𝐂𝐨𝐥𝐥𝐞𝐜𝐭𝐨𝐫 The Collector argued Section 4(3) only covers six transaction types: sale, lease, charge, settlement, exchange and partition. The ISDA fell within none of these. The word "settlement" in Section 4(3) refers to a disposition of property such as a trust, not a commercial debt restructuring. Even if Section 4(3) applied, the Settlement Agreement created an entirely new and independent payment obligation and could not be treated as a subsidiary instrument. It fell squarely within Item 22(1)(a) as an instrument of any kind whatsoever serving as the principal security for sums payable at stated periods with an ascertainable total sum. The Association of Banks in Malaysia letter had no force of law and could not override the statutory provisions of the Act.

𝐃𝐞𝐜𝐢𝐬𝐢𝐨𝐧 𝐨𝐟 𝐭𝐡𝐞 𝐂𝐨𝐮𝐫𝐭 The Court of Appeal unanimously dismissed CIMB's appeal with costs of RM20,000.00 to the Collector. Section 4(3) did not apply as the Settlement Agreement fell outside all six categories in that provision. Even if it did, the Settlement Agreement independently created a new payment obligation and could not be a subsidiary instrument. Item 22(1)(a) applied as the Settlement Agreement satisfied the definition of a bond and fell within the broad phrase "instrument of any kind whatsoever." The Association of Banks in Malaysia letter carried no legal authority. Total liability upheld was RM1,337,565.00 in stamp duty and RM66,878.25 in late stamping penalty.

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